Kenya Seeks New IMF Lending Program as Debt Burden Mounts

Kenya has begun talks with the International Monetary Fund (IMF) for a new lending program to replace the current arrangement expiring in April, Finance MinisterJohn Mbadi confirmed, as the country grapples with surging debt-servicing costs and fiscal pressures.

Despite securing a$941 million IMF loan boost in January 2024 — bringing total commitments under the Extended Fund Facility (EFF) and Extended Credit Facility (ECF) toover $4.4 billion — Kenya remains under financial strain. The country repaid its $2 billion Eurobond in June 2024, refinancing part of it through a $1.5 billion Eurobond issued earlier that year. Additionally, the World Bank has pledged$12 billion in funding for Kenya between 2024 and 2026, but mounting fiscal challenges persist.

"Maybe before the current program comes to a close in April, there should be some indicators whether we are starting a new program and what that new program will entail,"Mbadi told Reuters on Wednesday, Feb. 5. He added that Kenya is also considering a $1.5 billion commercial loan from the United Arab Emirates and possibly issuing another Eurobond to bridge funding gaps.

The U.S. administration's decision tofreeze foreign aid, including USAID funding, mounts increased pressure on Kenya's budget. "We don't have that fiscal space... We will have to rearrange the budget and re-channel the domestic resources,"Mbadi said, expressing hope that Washington might reverse its stance.

Economist and former IMF fellow Amboko H. Julians expects Kenya's next IMF program to focus on policy changes rather than direct loans. He told OkayAfrica that the likely framework would be a Policy Support Instrument (PSI), a non-funded program tied to economic reforms over five years. "The key issues here will be state-owned enterprises reform and domestic revenue mobilization measures, notably tax expenditure rationalization," he said.

Julians added that such a program could boost investor confidence, making it easier for Kenya to access international financial markets. The IMF haspreviously pushed for state-owned enterprise reforms and tax policy adjustments in Kenya, and similar conditions may be part of the new agreement.

On social media, Kenyans voiced frustration over the government's borrowing spree. Public opposition to more debt is fueled by last year'sdeadly protests, which forced the government to abandon income tax hikes. Despite this, President William Ruto's administration continues to roll outcostly development projects, including a Sh3.1 billion ($24 million) sewerage and water system and Sh1.8 billion ($14 million) for market development in Mandera County.

As the government faces public discontent over debt and spending, Mbadi has expressed the need for transparency. "We must be more transparent and communicate to Kenyans,"he said, pledging more public engagement on economic policies.